The Role of Accounting in the Control of Public Expenditure in Nigeria

The Role of Accounting in the Control of Public Expenditure in Nigeria

Over the years, the Nigerian public sector has increased greatly in important and this necessitated to many people writing on the role of accounting in this sector.  Dule, E. 1965 in his book titles management theory and practice, describes the roles of accounting in the public and private sectors as the factor which to plan, organize direct and control their financial resources and represent the organization to the third parties.

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He further stated that a reflection reveals that each of these approach contains a significant financial dimension for instance, important financial techniques can be used to measure whether resources are being effective utilized and co-ordinated in order to express organization plans and control activities to the third parties.  In addition to this sheared 1974 shares, the view that accounting plays an important and inevitable role of recording and managing funds in any public organizations in most suitable manner, using this funds as profitability as possible.  Planning future operations  and controlling financial accounting, cost accounting, budgeting, statistical analysis and sheared arrived at the same views but sees the role of accounting in different direction.  In short, it can be said that sheared view is as follow up of Dule’s 1965 idea on the role of accounting in any organization.  Kolade, O. and Peter M. Dean 1987 in third book, financial management in the Nigerian public sector looked at the role on the number of staff employed by these sector to facilitated the work of accounting  in an organization.  They said that the role of accounting in the public sector have become so important that the number of people employed to carry out these accounting function in an organization are very few compared to their work perform.

However, they maintained that public sector strive to recruit, train and develop accounting, sector with disproportional large number of the experience, and unqualified accounting staff.  At the same time, the small number of qualified experienced accountants remaining in the service have been rotated too frequently in a vain attempt to plug grabs left by defection to private sector.  They therefore suggest at a solution to the manpower problem in this sector by advocating the proper recognition of professional accounting levels and constitution of services designed to retain accounting in sufficient number and of significant quality in the public sector.

John and puge said that the accounting Apartment of any firm is the body that effect very utilize and coordination resources such as  capital, plant material and labour to achieve defined objective with maximum efficiency.

Bank describes this   role as a collective terms refers to the system, function process or office planning , providing co- ordination directing, evaluating and controlling of all available efforts and resources of an organization for the accomplishment of the objectives and policies which are designed  by and  handed down from the top executives of the organization.

These two people believed that the traditional role of accounting particularly in Nigeria public sectors has been neglected.  The financial function has been concerned with the routine task of controlling, authorizing, recording and reporting the lack of total view of the role of the financial function almost exclusively with middle – level managers and the lack of good financial managers.  Within top level management have predictable result in our public enterprises future.

The  effects of this defects are:

  1. Management information system of which accounting is a part, have been neglected:  Accounting has been more convened with the compliance and regulations than with serving management or other user needs.
  2. Methods of evaluating investment and performance have been inadequate with the result that management have been deprived at useful information and utilization of information has been poor.
  3. Policies have been evolved without proper consideration of their financial effects and implications.
  4. Accountability and control have been inadequate because of lack of innovation in financial sphere:

Okafor on his own view classified the role of accounting in the public enterprises  into four categories:

  1. A.               The owners of the business are primary states holders.  The financial information  obtain from the accounting departments determines how much the owner of the enterprises will earn.
  2. B.               It is also from this information that the enterprises determines how many people the enterprises will employ and how much each person will earn.
  3. C.               Creditors supply funds or services to the business.  Their state is in the ability to the organization to generate enough fund to enable it meet its contractual payments obligations to the creditors. Sit is from this financial department that determines how much the organization earns as their profit and finally how they will take their payment to their creditors.
  4. D.               The government is interested in profit performance which determines the tax liability of the business.  It is  from the accounting departments that the financial positions of the firm are known and this enables the firm to know whether they are making profit or not.  The government then tax the enterprises if they are making profit.


To earliest method of accounting in Nigeria was the use of memory to record the amount of Agricultural commodities like yam, Cassava, and livestock which passed from one person to the other, both the giver and receiver, relied on the retentive memories of their sons, daughters and wives.  This was a unique blend of oral accounting with the change  and  discharge system, from this early practice the natives moved on to record by the use of pierces of sticks, pebbles of strokes made on the walls of their buildings, the goals or monies exchange in stored. Cowries are often counted in tens and twenties, and a stroke on the wall or pebble thrown into a pit could represent a receipt of 10 cowries.  Where a payment of a similar amount is made then a pebble would be thrown away or a stroke cleared off.  At any time the number of pebbles, sticks or strokes remaining would signify the amount of money or commodity left.  The increasing business contract between Nigerians and the European countries make the beginning of modern accounting in Nigeria.  While the British merchant brought girl, guns and clothes in Nigeria, they took away palm oil and other agricultural raw materials needed by European industries, Between 1890 and 1914, these increased trading activities led to the introduction of British banks as well as the transporting of British system of Book keeping to Nigeria.  The delacted accounting records occasioned by the emerging economic  followed the pattern transplanting from Europe

READ  The Role of Accounting in the Control of Public Expenditure in Nigeria

The development of the nation’s financial system had a definite impact on the growth of the accounting profession.  The banks require from their customer.  Statement of accounting pre-requisite for considerations for financial accommodation.  The Lagos stock exchange was established in 1961 by an Act of parliaments and its regulations have been geared towards the encouragement of professional accounting practice.  In 1965, the Nigerian parliaments enacted an Act establishing the institute of chartered Accountants of Nigeria.  This bestowed professional status and statutory recognition to accounting practice in Nigeria.  In a similar vein, the Nigerian companies and Act of 1968 and new the companies and Allied matters Decree No 1 of 1990 required that every company shall cause to be kept proper books of account.  It  further require that accounts of public companies must be subject to statutory audits carried out by professional qualified chartered accountants.  These legal and professional development encouraged the formation of firms of chartered accountants.

On September 9, 1982, a Nigerian Accounting standard Board was established to regulate standards and practices in the profession.  Today, Nigeria has two well developed bodies of accountants, the ICAN and the Association of National Accountants of Nigeria (ANAN).  Most of the higher institution in Nigeria after degree courses in accountancy.  Thus accountancy in Nigeria has followed the international pattern.


          Accounting principles are the guidelines, laws or rules adopted by the accounting profession to serve as guide to accounting practices. Accounting principles includes the accounting and reporting assumption, standards and practices that a company must use when preparing external financial statement.  One objective of accounting principles is to reduce the differences and inconsistencies in accounting practices, there improving the comparability and credibility of financial reports.

The term General Accepted Accounting principles are procedures that guide and regulate accepted accounting practice at a certain period of time.  It is the collective opinion of what the professionals consider good accounting practice and procedure.

GAAP are recommended by the authoritative bodies of each country.  The term does not imply a rule of law which there can be not deviations.  Or exception?  The application of accounting principles in each country requires the accounting principles in each country requires the professional judgement of an accountant, and their principles are applied primarily to material and significant items. Items which have little or no importance on the financial statement can be dealt with on the basis of their necessity or application.  The Accounting principles Board (APB) state that “Generally accepted accounting principle.  Incorporate the consensus at a particular should be recorded as assets and liabilities should be recorded.  When these changes should be recorded, in them should be measured, what information should be disclosed and which financial statement should be prepared.


The term generally accepted accounting principles has long been used in

accounting profession and entered into the public domain.  These principles were not all written down in one day, they evolved over several decades.  These principles are supported and justify by institutions legal authority and acceptability.

It present, there exist certain accounting principles that all accountants recognizes and applied in practices.

They among others;

  1. i.                   BUSINESS ENTITY PRINCIPLES:

financial accounting distinguishes the business entity from the individuals connected with or coming into contact with the business, including the owners and managers of business. Therefore, accounts maintained for employers, employees, customers and other parties connected with the business. The law regards an in-corporated company as a separate legal entity from its members.

The Shareholders, debenture holders, creditors seen as merely contributing the financial resources entrusted as the directors of the company to manage the company in the over all interest of the owners of the business. The system of financial accounting is designed to report on the stewardship of the directors. This stewardship function would effectively isolates vales belonging to the company from those belonging to the parties in order to enable it ascertain the position of the business at a given time.


This brings the idea of independent judgement by the accountants and the freedom of bias in preparing and presenting the financial statement the accountant is expected to prepare accounts in such a way as to make room for other accountants to verify the account.

This then means that the Same Conclusion should be reached by different accountants working independently and following the same measurement Standards. In most Cases however Curtail Costs provide the most objective data, Capable of being independently verified. This implies that as much as possible that accounting records should be based on verifiable evidence.

“According to the Nigerian Statement of Accounting and practice standards. The principle connotes independence of judgement on the part of the accountant preparing the financial statements.

Objectives requires support by verifiable evidence; In contrast to subjecting or dependence on the verifiable opinion of the accountants preparing the financial statement.


The principle holds that in the preparation of the accounts and presentation of the financial statement the accountant should serve all the parties interested in the report fairly and equitably. Investor, prospective, investors, creditors, management and government agencies need accounting information to help then make decision regarding the allocation of their resources, and accountants should provide such information without favouring any particular group. Auditors are expected its test whether the account prepared by accountant show a true and fair view of the operation of the business and once this position is certified – by an independent accountant reliance can be placed upon the accounts.

According to SASI, this principle is a extension of the objective principle, “In view of the fact that there are many users of accounting information, all having different need, the fairness principles requires that accounting reports should be prepared net to favour any group or segment of society”

In describing financial statement as presenting true and fair view of business operations, such statements are taken as a whole.  The idea is that though some minor mistake may exist in the financial statement overall picture of the statement present a satisfactory expression of the operation for the period covered by the accounts.

It cannot be guaranteed that every item which appear in the balance sheet and project and loss account is accurate.  It is possible, that any error that exist in the financial statement are not sufficient to mislead those relying on the statements of the


Accounting to SASI this principle holds that only items of materials value are recorded strict accounting treatment”.  The analysis of accounting data can be costly while the inclusion of a range of data in the accounting reports may be confusing to the render.  Hence the significance  of item in relation to other item in the account should be considered.  The relatives rather than the absolute value of a item should be within.”  Items  of insignificant value are usually group together and reported under one heading for example for example, general or miscellaneous expenses.

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Materiality is a relative term, so that what may be considered material in smaller firms may be immaterial in larger firms.  But generally, the materiality of an item in the accounts is judged by the effects such an item would have on ultimate user of the accounts. If the omission of an item in the financial statement would mislead those relying on them, such an item is considered material”


“The are many instance in the past when accounting statements were prepared on the basis of speculators or optimism rather than reality.  So that if revenue were expected on the future, they could be recognized in the current years accounts.  Accounts have learnt through long and sometime better experience to be cautions and this attitude is expressed in the  principle demands exercising great care in the recognition of profit while at all known losses are adequately provided for. This is however to a justification for the creation of secret or hidden reserves.


This  principle is not started in the SAS, but it implies it.  It stipulates that the present financial statement should include all mateiral data that informed the reader to arrive at appropriate conclusion”

“Accounting statement should not be  misleading and should be accompanied by adequate notes to explain their contents.  The fundamental accounting contents are expected to be followed in the preparation of financial statement, but if any of them is not followed, the fact for this needs to be disclosed and reasons for it. “ The SAS, 8th schedule of the companies Act, section 335, subsection (I) to (ii) of the companies and Allied matters Decree are concerned with the details and form of financial records of companies.


The following conditions has to exist before the rules of general application for recording and reporting information about wealth that is accounting principles will be needed if possible.

  1. A recognized medium of exchange and a developed market for goods so that values could be provided  for incorporation in the accounts.
  2. Business carried on a continuing basis whre period reports becoem necessary.
  3. Large scale enterprises where it s difficult for any one of ultimately acquainted with the business to assess its progress without financial reports and valuations embodied in such reports are more difficult to come by.  Hence the need for recognized accoutning roles is greater.
  4. Separation of ownership and management rule for accounting are not essential when the manager is responsible only for himself.
  5. The existence of an undefined group of owners.  The problem of separation of management and ownership are reinforced when ownership is divided up among many people and the rights of ownership are freely transferable as in the case with  public companies listed in the stock exchange.


In other to have an effective control lower expenditure in our organization.  It is advisable to adopt and consider the effect of budget and budgetary control.

In a simple term, a budgeting is a financial plan for achieving an objective set out.  This is based merely on forecast, past experience, expectation etc.

As define by ICMA, A budget is a financial and or qualitative statement prepared and approved prior to a defined period for time, of the purpose of attaining a given objective and employment of capital.

Budgetary control  is a system of controlling  lost which includes the preparation of budgets co-odinating the department and establishing responsibilities comparing actual performance with that budgeted and cutting upon results to achieve maximum control.  The essential features of a budgetary control process includes.

1.       A financial plan to achieve the objective or target

2.       A monitoring process which measures the actual performance during the period.

  1. Comparison of actual performance with budgeted performance in order to determine the extent to which they are in line with one another.
  2. As corrective process designed to eliminate the divergence, if any between budgeted any actual performance.


Generally, we have two types of budgets.

  1. Short-term budget
  2. Long-term budget


This is usually referred to as current or operational budget.  It rlates to current condition and is normally prepared for a period not exceeding one year.  It is common to prepare short term budget, for one year is broad outline only and them to phase the one year budget into quarterly monthly, or even weekly plan in greater detail depending on the nature of the business operations and also on the other environmental factors.


This is the budget designed for long term development of the business.  A period of between three and ten years may be used depending on the nature of business and the environment in which the business operates.  Such budgets are invariably prepared in broad outline only and then expanded and detailed as the implementation period rolls in.


Budgeting helps immensely to the achievement to the achievement of expenditure control in both public sector.

1.       Authorization: It is used as an authority for the expenditure control for instance if five thousand Naira (N5000) is approved for the purchase of raw materials in any month, the purchasing officer do not need any formal approval of this expenditure in the budget and it expected that he must not expand beyond.


There is no doubt that standard costing plays an important role in production cost/expenditure control.  This is clear when a survey of accounting and management  literature are taken.

It is not contestable that the high cost of goods and services produced in Nigeria are a sort or worry not only to the consumers but also to the produces of the goods and service i.e. firms

Therefore for some of these firms, who are both on retaining many of their customers, they are always seeking ways of minimizing their cost of production  so as to finally have product with low prices, when compared with other product of the same quality, one such way is the use of standard costing which compares actual cost incurred with pre-determined cost of production.  This has the effect of keeping costs with pre-determined limits thereby increasing efficiency in production.


The establishment of standard cost for the element of production is a long and difficult task in that all the factors affecting production to be taken care of and their cost pre-determined as closely as possible.

Some of the factors are:

a.       Production specification: This implies that materials to be used in the production of a particular product must be specified both as to quality and quantity.  The amount of wastage which are expected to be incurred should be ascertained as they yield from the materials in some cases.  As to the quality of the material to be used it must be decided whether conditions demand that it be classified into.

  1. Unspecified
  2. Whatever can be obtained
  3. Whatever the harvest
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This classification must be done in such a way as to avoid exceeding the quality and dimension of material require to be used in production.

b.      Purchasing: Adequate procedures should be established such that raw materials are obtained under competitive tender at a lower prices.  The quantities purchased should be enough so as to avoid frequent purchasing with the result that capital is always tied up.  The firm should also established methods for maintaining adequate records at commitment, and others outstanding.

c.       Receipt of Materials:  This involves procedures which will ensure that the material derived by suppliers meet the specification required for production, Assurance is however quarried by carrying through inspection of the goods delivered by the supplier before the material are taken into stores.

d.      Issue of Materials: The firm should also establish method procedures to take adequate account of material that is issued of the stores.

e.       Defining of operations: the firm would have to determine the type of operations to be performed, who will perform the operation and where they are to be performed. They would also determine the square in which the operation is to be carried out and the timing operation. This is done to guarantee efficient operation of production activities.

f.       Division of factory into functions: This is matter of policy depending on the organization concerned.  This is decision has to be made on how to group the different functions of the organization.  Usually these groupings or division are termed cost centres, each being a work centre in which district operations are performed on the product.

Halleng taken care of all the above factors, the firm would then decide on the type of standard it want to achieve an effective control over expenditure.

The following are the standards

  1. Ideal standard
  2. Expected standards
  3. Basic standards
  4. Normal standards

i.       Ideal standards: in this case, a target is set, which it achieved will represent the highest level of efficiently is the standard can be attained under the most favourable condition possible.  This therefore presupposes the most efficient operating conditions and that the firm’s plant will make maximum utilization of its input. The anticipation perfect labour performance maximum of the efficient material usage and absolute absence of operating hitches.  Machine breakdown are not expected to occur therefore to produce a particular product, an absolute minimum of direct material at the lowest possible prices are assumed, so also the direct labour in which cases of the time and rates allow no deviation, no matter the extent from the very high standard of efficiency are also  taken into account when setting standard for overhead cost as a result, an ideal standard is always better than the actual performance.

ii.      Expected standards: Standards set on the basis of expected standard could be of a great advantages so far as they are set with the objective of obtaining the best result out of the available faculties.  Though the variance generated under this condition will show divergences. They are likely to reflect more accurate, measurement of superior or normal performance this facts in itself constitutes a recommendations.  As a result, sub-unit managers and supervisors are expected to come to grips with the target set and the resulting variances, which represents a reduction in efficiency.

iii      Basic standards: These are standards based on the ideal of suing existing or past performance in this case future performance will not be better than the post and are therefore established to be used over a long period of time without an adjustment to it.

A standard of the type is similar to the standard of measurement of length; volume etc that is to say.  It serves as a fixed standard of measurement for a long period of time and to this extent is extremely useful.

Normal standard: these are standard which are set lacing into account the pre-determined cost of production for a business cycle rather than for a fiscal year.  In other words, they represents an average figure, which hopes will smooth out fluctuations caused by seasonal and cyclical changes using this standards as a base for setting standard cost will have for reaching implication since they do not contribute much to incentives to the workers to perform better and also for the fact that the are of a long range time duration.


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The Role of Accounting in the Control of Public Expenditure in Nigeria

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